BABY MATHEW V. THE ASSISTANT COMMISSIONER OF INCOME TAX

ITA/239/2019

AI Insights

The case revolves around the issue of whether advances received by the assessee from sister concerns should be treated as 'deemed dividend' under Section 2(22)(e) of the Income Tax Act, 1961, for the assessment year 2008-09. The assessee, Baby Mathew Somatheeram, contested the inclusion of these advances as deemed dividend, which was initially accepted by the Assessing Officer and upheld by the CIT(A). However, the Tribunal had earlier remanded the matter back to the Assessing Officer for a de novo assessment, which was not properly adhered to in subsequent assessments. The High Court found that the Tribunal's directives were not followed, leading to the setting aside of the subsequent orders and remitting the case back for a fresh assessment.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 751631 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 30-11-2021
• Assessment Year: misc
• Other Referred Cases: P.Satya Prasad vs ITO, ITO vs Gordhandas Khimji, Smt. Tarulata Shyam vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM
• Assessee Lawyers: RAMESH JOHN
• Keywords: Assessment Year 2008-09; Cochin Bench; Deemed dividend; Income tax appellate tribunal; Advances from sister concerns
• Section: 143(3); 2(22)(e); 260A

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI TUESDAY, THE 30TH DAY OF NOVEMBER 2021 / 9TH AGRAHAYANA, 1943 ITA NO. 239 OF 2019 AGAINST THE ORDER/JUDGMENT DTD 08.02.2019 IN ITA 269/COCH/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: BABY MATHEW SOMATHEERAM, CHOWRA PO, BALARAMAPURAM, THIRUVANANTHAPURAM-695 501 BY ADV SRI.RAMESH CHERIAN JOHN RESPONDENT/S: 1 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE(1), OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX, RANGE-I, AAYAKAR BHAVAN, KAWDIAR, THIRUVANANANTHAPURAM-695 003 2 THE COMMISSIONER OF INCOME TAX, O/O. THE COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, KAWDIAR, THIRUVANANTHAPURAM-695 003 OTHER PRESENT: SC CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 30.11.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA NO. 239 OF 2019 -2- JUDGMENT S.V.Bhatti,J. Mr.Baby Mathew, resident of Thiruvananthapuram/ assessee is the appellant, Assistant Commissioner of Income Tax, Circle-1(1) and another/Revenue are respondents. 2. The assessee being aggrieved by the order dated 08.02.2019 in ITA No.269/Coch/218 of the Income Tax Appellate Tribunal, Cochin Bench, (for short, 'the Tribunal') has filed the appeal under Section 260A of the Income Tax Act, 1961 (for short, 'the Act'). 3. The controversy in the appeal relates to the assessment year 2008-09 and involves a question whether the advances received by the assessee could be treated as ‘deemed dividend’ amounting to Rs.2,22,65,558/- under Section 2(22)(e) of the Act. The dispute touched the doors of the Primary ITA NO. 239 OF 2019 -3- Appellate Authority and the Tribunal on two separate occasions and from the view we would be recording in the judgment, it can be appreciated that the proverb ‘a stitch in time saves nine’. 4. The assessee filed return for the assessment year 2008-09 declaring total income of Rs.33,65,000/-. The return was selected for scrutiny under Section 143(3) of the Act and the scrutiny related to viz. 1) the deemed dividend income under Section 2(22)(e) of the Act; 2) interest income; 3) income from Keralatourism.com said to have been received by the assessee. 5. In the present litigation the court is concerned with whether the receipt of loan/advances from sister concerns, where the assessee is one of the directors, could be treated as ‘deemed dividend’. The details of the loan/advances received are as follows: ITA NO. 239 OF 2019 -4- M/s. Somatheeram research Institute and Ayurveda Hospital Pvt. Ltd: Rs.26,98797.5/- M/s. Manaltheeram Beach resorts Pvt.Ltd: Rs.3929000/- M/s.Somatheeram Ayurvedic Beach resorts Pvt.Ltd: Rs.12771653/- M/s.Manaltheeram Ayurvedic Hospital and research centre Pvt Ltd: Rs.2866107 6. The Assessing Officer rejected the explanation offered by the assessee that the above loans/advances received from the sister companies are regular business transactions facilitated by the sister concerns in favour of assessee for development of business. Result of such rejection, the Assessing Officer treated the loan/advances as deemed dividend income and added to computation of assessee’s income. The assessee unsuccessfully challenged the assessment order before the Commissioner of Income Tax, (Appeals), Thiruvananthapuram, (for short, CIT(A)) and by order dated 18.02.2013, the appeal filed before the CIT(A) stood dismissed. The assessee filed ITA No.204/Coch/2013 before the ITA NO. 239 OF 2019 -5- Income Tax Appellate Tribunal, Cochin Bench (for short, 'the Tribunal'). The Tribunal vide order dated 25.10.2013, allowed the appeal filed by the assessee and remitted the matter to the Assessing Officer for de novo Assessment. The arguments, now put forward on the substantial question of law are viz. whether the Assessing Officer, CIT(A) and the Tribunal etc. have taken up and concluded the assessment as directed by the Tribunal in its order dated 25.10.2013 in Annexure-B or not. The operative portion of the order of the Tribunal is excerpted hereunder: 3.3 Accordingly, the orders of the lower authorities are set aside and the issue with regard to deemed dividend is remanded back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue in the light of the material on record and the available accumulated profits and thereafter decide the same by a speaking order in accordance with law after giving a reasonable opportunity of being heard to the assessee. It is also made it clear that the Assessing Officer shall examine the computation of accumulated profit filed by the assessee and if any error or mistake is found, the Assessing Officer shall re-compute the accumulated profit ITA NO. 239 OF 2019 -6- on the basis of the material available on record. It is also made clear that this Tribunal is not expressing any opinion on merit; and the Assessing Officer shall decide the matter on merit in accordance with law after giving a reasonable opportunity to the assessee. Second Round 7. The Assessing Officer through Annexure-C assessment order dated 31.03.2015 completed the assessment by recording the following conclusions: The assessee in the submission dated 30.03.2015, has reduced the deemed dividend of the earlier years in order to arrive at the actual loan/advances given to the director during the year. The actual expenses incurred has never be taken into account. The assessee has not taken into account, the expenses incurred during the year in order to arrive at the net figure. Hence the following is considered to be deemed dividend u/s.2(22) (e) and brought to tax. The amounts mentioned is the actual amount given by the companies during the year and hence treated as deemed dividend as accumulated profits are there in earlier years. 1) Manaltheeram beach Resorts Pvt.Ltd. Rs.33,29,000/- 2) Somatheeram Research institute and Ayurvedic Hospital Pvt.Ltd. Rs. 5,88,337/- ITA NO. 239 OF 2019 -7- 3) Somatheeram Ayurvedi Beach Resort (P)Ltd. Rs. 97,08,506/- Total Rs.1,36,25,843/- ============== 8. The assessee now principally is aggrieved by the mode and manner of assessment by the Assessing Officer, stated simply that the Assessing Officer ignored the directive of the Tribunal vide order dated 25.10.2013 in Annexure-B. Much effort is not needed to accept the limited grievance of the assessee in this behalf, for the CIT(A) explicitly found so against the assessment order in Annexure-C dated 31.03.2015. The operative portion of the order of the CIT(A) in Annexure-D dated 03.04.2018 is excerpted hereunder: 8. I carefully examined the facts of the case and also considered the rival contentions. At the outset, I agree with the assessee that the Assessing Officer in the appeal effect given order has not executed meticulously the direction stipulated in the Tribunal's Order. As ordered by the Hon'ble Tribunal, the Assessing Officer should have first verified and decided whether the advances made in the earlier assessment years are for the purpose of business or not so as to consider the same for the current year as well. Though the assessee claimed that the amounts were given to him in the normal course of business ITA NO. 239 OF 2019 -8- and to promote the activities of the companies, never at any point of given time documentary evidences were brought out so as to prove that the money which was given to him had actually been spent to promote the business activities of the companies in which the assessee was the Managing Director/Director. In the absence of credible evidences brought out in this regard, the amounts given to the assessee by all the companies wherein he was either a Managing Director or Director cannot be treated as given for the purpose of business. Hence, invoking the provisions of section 2(22)(e) has rightly been justified. Secondly, the Assessing Officer should have examined the computation of accumulated profit worked out by the assessee and if any mistake is found in the computation then should have recomputed such profit mis the basis of materials available on record. This important task to my undertaking has not been carried out properly but simply a mathematical calculation was made by reducing the opening balance and credits in the assessee's account with the companies from where advances have been taken. However, this shortfall has rightly been taken care during the course of hearing before the undersigned and thereby, the right amount of deemed dividend based on the detailed working submitted by the assessee is going to be worked out. With regard to the main issue of computation of accumulated profit the assessee has postulated an argument stating that accumulated profit ac not include current years profit and the deemed dividend assessable in any of the earlier years need be reduced from accumulated profit as ruled in the decision of the Hon'ble ITAT, Visakhapatnam Bench in the case of P.Satya Prasad vs ITO (141 ITD 403) which followed the decision of the Hon'ble ITAT, Cochin Bench in the case of ITO vs ITA NO. 239 OF 2019 -9- Gordhandas Khimji reported (11 ITD 158) which in turn again considered the decision of the Hon'ble Supreme Court in the case of Smt. Tarulata Shyam vs CIT (108 ITR 345). The deemed dividend assessable in any of the earlier years as per the above mentioned decisions has also to be reduced from the accumulated profits even if it was not assessed to tax in that year. In view of the specific provisions of the Act and also as per the Hon'ble Tribunal's decisions mentioned above that the accumulated profit alone has to be treated as deemed dividend, I have no other option but to follow the decisions relied on by the assessee. Accumulated profits as per the decisions relied on by the assessee do not include current years business profits since it accrues only at the end of the year and the deemed dividend assessable in any of the earlier years has to be reduced from accumulated profits even if it was not assessed to tax in that year. 9. Thus, the assessee was directed during the course of appeal hearing to furnish all the details so as to work out the deemed dividend as directed by the Hon'ble ITAT, Cochin Bench. The assessee furnished the requisite details. He also worked out the deemed dividend starting from a particular assessment year and while doing so, the accumulated profit and deemed dividend of earlier years have not been taken into account because of the reason that the books of account of earlier years are not available with him. This is to be accepted and considered further since the opening balance of the first year which consists of reserve & surplus and accumulated profit takes care of the net brought forward accumulated profit and even the Assessing Officer who worked out the accumulated profit subsequent to receiving direction from the Hon'ble Tribunal has considered only the opening balance and advance ITA NO. 239 OF 2019 -10- made during the year under consideration”. 9. The Revenue being aggrieved by determination in the manner excerpted above, filed appeal before the Tribunal and the Tribunal considered it from yet another perspective and set aside the order of the CIT(A) in Annexure-D dated 03.04.2018. The Tribunal concluded its order with the following finding: “However, the CIT(A) while deciding the issue, considered the amount of deemed dividend which should have been assessed in any of the earlier years and reduced it from accumulated profits, though there was no assessment of deemed dividend in the earlier year. Hence, this is wrong application of the judgment of the ITAT, Visakhapatnam in the case of P.Satya Prasad vs. ITO cited supra by the CIT(A) to the facts of the present case. Hence, we vacate the findings of the CIT(A) and restore that of the Assessing Officer which is in conformity of the decision if the ITAT, Visakhapatnam, cited supra.” 9.1 Hence the appeal. The substantial questions raised in the appeal are reproduced hereunder: I) Whether on the facts and circumstances of the case the order of the Tribunal impugned herein is a non speaking one passed without application of mind ITA NO. 239 OF 2019 -11- and without dealing with and without any adjudication on the contentions raised by the appellant which were supported by decisions of various Benches of the Tribunal including that of the Cochin Bench which were rendered relying on the judgments of the Hon'ble Supreme Court and various High Courts. ii) Whether on the facts and circumstances of the case the finding of the Tribunal that there is a wrong application of the judgment of the ITAT Vishakapatanm in the case of P. Sathyaprasad Vs. ITO by the CIT (A) to the facts of the case, when the appellant has relied on the said decision before the CIT (A) for the reason that judgments of the Hon'ble Supreme Court, Various High Courts and decisions of various Tribunals including the Cochin Bench were considered and dealt with therein, which have all decided the issue of computation of accumulated profits after allowing permissible deductions for the purpose of determining deemed dividend under section 2 (22) (e) of the Income Tax Act, 1961 and also Income Tax Act, 1922. iii) Whether on the facts and circumstances of the case the finding of the Tribunal that there is wrong application of the judgment of the ITAT Vishakapattanam in the case P. Sathyaprasad Vs. ITO by the CIT (A) to the facts of the present case is perverse, contrary to law and facts and without application of mind. iv) Whether on the facts and circumstances of the case the Tribunal was justified in coming to the finding that the deemed dividend of the earlier years reduced from the accumulated profit should have been assessed under the Act and is ITA NO. 239 OF 2019 -12- not the said finding of the Tribunal without any adjudication on the issue and simply a mere finding which is perverse and unsustainable. v) Whether on the facts and circumstances of the case, the Tribunal was justified in vacating the findings of the CIT (A), Thiruvananthapuram, dt. 03.04.2018 with regard to deduction of current years profit from accumulated profits without considering or adjudicating on the said issue in the order. vi) Whether on the facts and circumstances of the case, the Tribunal was justified in vacating the order of the CIT (A), Thiruvananthapuram, dt. 03.04.2018 who had correctly computed the deemed dividend and which was in accordance with settled judicial principles and precedents. vii) Whether on the facts and circumstances of the case, the finding of the Tribunal that the order of the assessing authority computing the deemed dividend is in conformity with the decision of the ITAT Vishakapattanam in the case P. Sathyaprasad Vs. ITO and is not the said finding illegal, unsustainable, perverse and without application of mind when the issue decided by the Tribunal in the said case was with respect to clause (iii) of section 2 (22) (e) of the Act which is not the issue involved in this case.” 10. Mr.Ramesh Cherian appearing for the assessee, before making his submissions on the merits on the claim of the assessee to treat the loan/advances provided by the sister ITA NO. 239 OF 2019 -13- concerns of the assessee as part of business promotion and a routine accommodation and does not merit the attraction of deemed dividend income to add to the computation, vehemently argued that the second round of consideration and determination of deemed dividend income issue arising in the case on hand not only falls short of the directives given by the Tribunal in Annexure-B dated 25.10.2013 and per se contrary to Section 2(22)(e) of the Act. The Tribunal relied on an inapplicable judgment and has erased the findings recorded by the CIT(A) on merits. Therefore, the Revenue if is aggrieved by the manner of computation of deemed dividend income by the CIT(A) in Annexure-D order, should have directed the Assessing Officer to redo strictly as per the the directives in Annexure-B. The directives of the Tribunal, from a mere look at the orders made in second round would disclose that these are perfunctory orders, for doing justice and determination of ITA NO. 239 OF 2019 -14- income of the assessee, computation of income is must in accordance with the directives issued in Annexure-B order. 11. Mr.Christopher Abraham, replying to the preliminary objection taken by Mr.Ramesh Cherian argues that the Assessing Officer appreciated what was concluded by the Tribunal in its order in Annexure-B and no doubt, in the assessment made subsequent to remand, sufficient details are not stated either for accepting or refusing the claim of the assessee. He quickly points out that there could be a perceptible mistake in the consideration of deemed dividend by the Assessing officer, an equal mistake is committed by the CIT(A) by entertaining material placed before him and recording the findings over and above what has been decided by the Tribunal in the first round of litigation. Whether the view taken by the Visakhapatnam Bench in P.Satya Prasad vs. ITO case is applicable or not is again dependent on how the ITA NO. 239 OF 2019 -15- findings recorded by the CIT(A) in his order dated 03.04.2018 in Annexure-D are decided. He does not seriously dispute the argument of the assessee to remit the matter to the Assessing Officer for consideration and disposal strictly in accordance with the order in Annexure-B and in accordance with law. 12. Therefore, though several questions have been raised in the appeal, as we are pursuaded with the first question viz. Whether the the orders made subsequent to remand in Annexure-B order, the Authorities have complied with the directions in Annexure-B or not. The portion excerpted above indicate non-consideration of deemed dividend issue in the manner directed by the Tribunal in Annexure-B order, virtually amounts to not appreciating the principle on which the order of remand is made by the Tribunal. We are pursuaded by the first objection raised by Mr.Ramesh Cherian and accordingly answer the question in ITA NO. 239 OF 2019 -16- favour the assessee and against the Revenue for the limited purpose of setting aside the orders of Assessing Officer, CIT(A) and Tribunal in Annexures C, D and G respectively and remit the case to Assessing Officer for disposal afresh. 13. For statistical purpose, matter remitted to Assessing Officer for decision afresh in accordance with law and as per the directive issued by the Tribunal in Annexure-B dated 25.10.2013. Appeal is allowed as indicated above. No order as to costs. Sd/- S.V.BHATTI JUDGE Sd/- BASANT BALAJI JUDGE JS "